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AKD Banking universe is set to announce its 3QCY24 results. The brokerage house expects profit to increase by 3%YoY to PKR94.4 billion as shrinking NIMs and high provisioning cost to be overshadowed by higher non-core income and growth in investment book.

The brokerage house expects yields on investment to decline slightly despite significant drop in secondary market yields during 2QCY24, as bank’s locked in T-Bills at higher rates, particularly in a 12-Months tenure.

Strong non-markup income on the back of gain on sale of securities due to declining secondary market yields along with higher fee and dividend income would offset higher provisioning and operating expenses.

The brokerage house anticipates banks to maintain cash payout given adequate capital levels on the back of firm profitability amid declining dividend yields.

However, Lower ADR would be a concern for UBL and MCB, while BAFL and HBL are likely to avoid additional ADR reported.

Banks are expected to maintain profitability on increasing support from non-core income. AKD Banking universe is set to announce its 3QCY24E results, where we expect profit to increase by 3%YoY to PKR94.4 billion as shrinking NIMs and high provisioning cost to be overshadowed by higher non-core income. This would take 9MCY24 profit to PKR284.3 billion, up 16%YoY from PKR244.6 billion in same period last year.

On sequential basis, the brokerage house expects Net Interest Income to increase by a paltry 1% to PKR268 billion on the back of increase in investments portfolio.

Further, yields on investment are expected to decline slightly despite significant drop in secondary market yields during 2QCY24, as bank’s locked in T-Bills at higher rates, particularly in a 12-Months tenure.

The average cut-off yields declined 235 bps for 3-Months and 6-Months bills respectively, while 258 bps for 12-Months bills in 3QCY24E against 2QCY24.

However, the raised amount by gov’t declined by 28%QoQ, with a tilt towards high yielding 3-Months paper against majority of the participation in 12-Months paper in 2QCY24. Deposit and repo borrowing rates are estimated to have declined amidst a policy rate cut of 300bps since mid June2024.

Strong non-markup income on the back of gain on sale of securities due to declining secondary market yields along with higher fee and dividend income would offset higher provisioning and operating expenses. The brokerage house anticipates non-markup income to increase by 19%QoQ to PKR85.2 billion in 3QCY24.

The brokerage house anticipates banks to maintain cash payout given adequate capital levels on the back of firm profitability amid declining dividend yields.

However, going forward lower ADR would be a concern for UBL and MCB, while BAFL and HBL are likely to avoid additional ADR related tax.

UBL and MCB would require advances to increase by PKR430 billion and PKR189 billion, for 40% ADR, till December 2024.

Meezan Bank Result

Meezan Bank (MEBL) has posted 3QCY24 consolidated profit after tax of PKR26.2 billion (EPS: PKR14.58), flat YoY and QoQ. The result is lower than market expectations of EPS: PKR15.77. This takes 9MCY24 net profit to PKR78.3 billon (EPS: PKR43.62), up 34%YoY.

Core revenues have grown swiftly (net spread income and fee). However, these positives were masked by a large provisioning charge of PKR2.5 billion and a higher effective tax rate of 55% (preemptive provisioning for year-end ADR tax) – excluding which this would be an earnings beat.

Results were accompanied with cash dividend of PKR7.0/ share.

3QCY24 Key result highlights include:

Net spread income rose by 9%QoQ and 20%YoY to PKR76.9 billion. This was led by a sharper drop in the cost of deposits (savings deposits repriced fully to the recent rate cuts) against the rates on loans.

MEBL’s cost of borrowing also came off sharply – although it has a relatively low base. MEBL’s CASA remained intact at 90% while reporting strong deposit growth of 27%YoY in 3Q.

Advances grew by 17%YoY while investments were up 12%YoY.

MEBL posted LLP charge of PKR2.4 billion in 3QCY24 as against cumulative reversals of PKR943 million in 1HCY24.

NPLs grew at 14%QoQ. However, the NPL ratio remained largely unchanged at 1.7% while total coverage stood at 165%.

Non-funded income was reported at PKR7.9 billion, up 10%YoY and 18%QoQ. This was primarily driven by strong pick-up in fee (up 34%YoY and 29%QoQ) to PKR6.9 billion – led by strong cross selling and broad-based growth in branch banking, debit cards and trade.

Most other non-core income lines came off with MEBL reporting a capital loss of PKR745 million. Moreover, Fx income has dropped to PKR29 million from as high at PKR1.6 billion during the same period last year.

Core admin expenses grew 18%YoY to PKR22.0 billion – a slower growth driven by a high base last year. The C/I has inched lower to 28%.

MEBL effective tax rate rose to as high as 55%, from an estimated 49%. It is believed that this may be pre-emptive provisioning for ADR related taxation due in December 2024. Importantly, MEBL’s net ADR slipped to 42% in 3Q, from 46% in 2Q.

On core earnings this is a strong result. Analysts are not fazed by the high LLP charge as MEBL still maintains one of the highest NPL coverage levels in the listed Banking sector.